This episode, recorded live at the 2023 Alpbach Forum in Tirol, Austria, explores why economic inequalities have increased over recent years and how such stratification is detrimental to democracy. What has been learned through past and current crises? And how might the green transition play a role in the future? Listen for economic perspectives on potential steps toward a more equitable and democratic world.
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Glossary
Capital gains taxation
(17:00 or p.4 in the transcript)
The capital gains tax is the levy on the profit that an investor makes when an investment is sold. It is owed for the tax year during which the investment is sold. The long-term capital gains tax rates for the 2022 and 2023 tax years [in the US] are 0%, 15%, or 20% of the profit, depending on the income of the filer. The income brackets are adjusted annually. An investor will owe long-term capital gains tax on the profits of any investment owned for at least one year. If the investor owns the investment for one year or less, short-term capital gains tax applies. The short-term rate is determined by the taxpayer's ordinary income bracket. For all but the highest-paid taxpayers, that is a higher tax rate than the capital gains rate. When stock shares or any other taxable investment assets are sold, the capital gains, or profits, are referred to as having been realized. The tax doesn't apply to unsold investments or unrealized capital gains. Stock shares will not incur taxes until they are sold, no matter how long the shares are held or how much they increase in value. source
Tax havens
(17:07 or p.4 in the transcript)
A tax haven is a country that offers foreign businesses and individuals minimal or no tax liability for their bank deposits in a politically and economically stable environment. They have tax advantages for corporations and for the very wealthy, and obvious potential for misuse in illegal tax avoidance schemes. Companies and wealthy individuals may use tax havens legally as a means of stashing money earned abroad while avoiding higher taxes in the U.S. and other nations. Tax havens may also be used illegally to hide money from tax authorities at home. The tax haven can make this work by being uncooperative with foreign tax authorities. In recent times, tax havens are under increasing international political pressure to cooperate with foreign tax fraud inquiries. Broadly speaking, tax havens are jurisdictions that have very low taxes and no residency requirements for foreign entities and individuals willing to park money in their financial institutions. A combination of lax regulation and secrecy laws enable corporations and individuals to screen some of their income from tax authorities in other nations. The Tax Justice Network maintains a Corporate Tax Haven Index that tracks the jurisdictions that it says are "most complicit" in helping multinational corporations evade taxes. As of 2021, the worst offenders were the British Virgin Islands, the Cayman Islands, and Bermuda. Tax havens may be found in another country or merely in a separate jurisdiction. source
Trickle-down economics
(21:19 or p.5 in the transcript)
Trickle-down economics and its policies employ the theory that tax breaks and benefits for corporations and the wealthy will trickle down and eventually benefit everyone. Tools like reduced income tax and capital gains tax breaks are offered to large businesses, investors, and entrepreneurs to stimulate economic growth. The trickle-down theory states that tax breaks and benefits for corporations and the wealthy will trickle down to everyone else. Trickle-down economics involves less regulation and tax cuts for those in high-income tax brackets as well as corporations. While there is no single comprehensive economic policy identified as trickle-down economics, a policy is considered “trickle-down” if it disproportionately benefits wealthy businesses and individuals in the short run but is designed to boost standards of living for all individuals in the long run. Both President Herbert Hoover’s stimulus efforts during the Great Depression and President Ronald Reagan's use of income tax cuts were described as "trickle-down." Critics argue that the added benefits the wealthy receive can distort the economic structure as lower-income earners without an equal tax cut adds to income inequality. Many economists counter that cutting taxes for the poor and working families boosts the economy by increasing spending on goods and services whereas a tax cut for a corporation may go to stock buybacks or increased savings for the wealthy. In December 2020, a London School of Economics report by David Hope and Julian Limberg was released which examined five decades of tax cuts in 18 wealthy nations and found they consistently benefited the wealthy but had no meaningful effect on unemployment or economic growth. source
Shalini Randeria (SR): Welcome to Democracy in Question, the podcast that addresses the challenges that liberal democracies are facing all over the world today. My name is Shalini Randeria, I'm Rector and President of the Central European University in Vienna and Senior Visiting Fellow at the Albert Hirschman Centre on Democracy at the Graduate Institute, Geneva.
This is the fifth episode in the seventh season, and it was recorded live on August 30 at the European Forum Alpbach in Tirol, in Austria. My guest is Professor Joseph Stiglitz, winner of the Nobel Prize in Economics in 2001. I discuss with him why economic inequalities have increased of late and why these are detrimental to democracy. Professor Stiglitz is University Professor of economics at Columbia University and chief economist at the Roosevelt Institute. He was senior vice president and chief economist at the World Bank and served on the Clinton administration’s Council of Economic Advisors. He is the most well-known of the New Keynesian economists of the last half a century. His insights into the most pressing problems of our times have made his wide-ranging work written for a general readership indispensable reading. He's the author of many groundbreaking books of which let me mention but a few: “Globalization and its Discontents”[i] and also “Making Globalization Work”[ii] were bestsellers, as was “Freefall”[iii]about the 2008 financial crisis. But the book that I will discuss with him today is “The Price of Inequality”[iv] along with his book “The Great Divide”[v]. His latest book “People, Power, and Profits”[vi]is equally pertinent to the subject of our discussion.
Joe, it's indeed a great pleasure to welcome you this morning on the podcast and thank you so much for being here with me.
Joseph Stiglitz (JS): Real pleasure.
SR: I'd like to begin our conversation with the urgency of ameliorating the extraordinary rise in global economic inequalities, both between countries and also within them. You recently wrote an open letter with the Indian economist, Jayati Ghosh, calling for a stronger and a more ambitious institutional commitment to reduction not only of poverty, but of inequalities. It was addressed to the UN Secretary-General and to the new president of the World Bank, signed by 236 senior economists.
Let me ask you to explain some of the background to these numbers that we are seeing. You write in the letter, "Extreme poverty and extreme wealth have risen sharply and simultaneously for the first time in 25 years. Between 2019 and 2020, global inequality grew more rapidly than at any time since the Second World War. The richest 10 percent of the global population currently takes 52 percent of global income, whereas the poorest half of the world population earns 8.5 percent of it. Billions of people face the terrible hardship of high and rising food prices and hunger, whilst the number of billionaires has doubled in the last decade."
What has led to the simultaneous rise of extreme poverty and extreme wealth over the last few years? And how do you compare this to earlier epochs about which you've written extensively in your book, “The Price of Inequality”?And why is this politically dangerous?
JS: We had the pandemic and the Russian aggression against Ukraine that led to not only a spike in energy prices, but also a spike in food prices. And the two together came on top of some trends that were worrying even before.
So even before 2019, many developing countries and emerging markets had accumulated too much debt. In a world of zero interest rates, having a lot of debt doesn't matter. But if, all of a sudden, interest rates go from zero to 5 percent or 10 percent in developing countries that are even higher than that, then all of a sudden, you have a debt-GDP ratio of 100 percent, that just devastates education budgets, growth budgets, health budgets.
So, even before the crisis, we had had this 15 years of, I would say, mismanaged monetary policy, with super-low interest rates, and banks that were encouraging financial markets, that were encouraging countries to take on more and more debt, because the banks were getting zero interest rates from the developed countries, and they can get a little bit from the developing countries. So, that was their business model. Get poor countries in debt.
And then came the Covid-19. Countries had no choice but to get even more debt. The reason was obvious. Exports plummeted. They needed to spend money to buy vaccines. We've heard a number of times how bad Europe was in terms of giving access to intellectual property. They were good in shipping vaccines, but not allowing them to produce the vaccines in the developing countries. So, needs went up, revenues went down, more debt.
And while the economies in the advanced countries spent, United States, 25 percent, 30 percent of GDP to restore the economy, developing countries and emerging markets just didn't have the money. So, their economic downturns were much larger. Some of the countries had downturns of 10 percent of GDP. So, this kind of division across countries, pretty clear what the factor that contributed to the growth of inequality.
Now, within countries, there were similar processes. The most exposed individuals, both health, and in terms of jobs, were lower-income individuals. They were the frontline workers, the service workers. Academics all went to Zoom. They kept their jobs. They were able to work. Theworkers were exposed, and many of them lost jobs.
In the aftermath, the war, there were a lot of profits that went to the oil companies. For the oil companies, those prices going up, food companies, going up was a great thing. So, they had windfall profits.
SR: Which we failed to tax.
JS: Which the West failed to tax. There was no reason not to tax these windfall profits. And then one more thing happened. Because of all the economic chaos, there was a lot of monopoly power, and we got exposed to the extent of monopoly power that we previously had.
In a normal, well-functioning economy, you raise your prices a little bit and competitors can come in and push you down. But when supply chains are being broken up all over the world, your competitor may not be able to get the supplies that he needs to compete with you. So, the competitive structure of the market economy broke down. And so, all over the economy, we have evidence of an increase in market power. And market power that was already there. In the United States, there was a total shortage of baby formula, you know, the kind of thing that you would've thought you got in the Soviet Union, in a planned economy. No one could get baby formula. And then we found out why. Because one company controlled half of the supply, that one company had succeeded in getting the government to restrict any imports of baby formula, and when it was discovered that that one company did not have safe production facilities, they shut it down, and half the supply of baby formula disappeared overnight. We had a crisis. And can you imagine that in a modern economy? But I like that example because it shows the degree of monopolization that had occurred in one product. I've been writing my book, the one that you mentioned, about how sector after sector, that had been occurring.
SR: So, to pick up the second point which you've made, so, it's not just global inequalities between countries, but also within countries, right? To quote another one of your numbers, which is really striking, where you say the top 1 percent saw their incomes increase by 60 percent, and the income gains have been greatest among the global elite, whereas eight percent of humanity takes home 50 percent of global income.
So, there's a huge problem of distribution between countries in inequalities, but also within countries. Now, this is a really bleak picture, with a lot of political implications, which I would like you to tease out. And what do you think the government measures could be to intervene in this situation in order to come back to levels of inequality, which may be socially acceptable in different settings?
JS: Yeah. I think one has to understand, you know, in market economies, you're going to get some degree of inequality. You need inequality, in a sense, to provide incentives. I don't think anybody's talking about an ideal where everybody has the same. If you work more, you get more. If you save more, you should get more.
What is concern is when the inequalities are in some way unjustified. And when it's perceived to be unjustified, that has very strong political consequences, that have been articulated by the populists. That undermines confidence in democracy, in a market economy.
Examples of that are when the oil companies make these tens of billions of dollars of windfall profits, they didn't do anything to deserve those windfall profits. The same thing about our grain traders, they had windfall profits. And so, some of the speculators, who were the people taking advantage, were the big winners in all this. So, in a context in which one sees how you almost say bad actors, those who were taking advantage of the situation, were reaping enormous profits, it generates anger at the system.
To give you another example where the anger is a little bit more mixed. We talked about Covid-19. Most of the money for the research and development that led to the vaccine, an enormous achievement of this vaccine, produced in a very short time, was based on public-funded basic research, mRNA, development of the platform, the University of Pennsylvania, and elsewhere; well over 90 percent, 95 percent of the research money was given by the government.
But what was the profit division? 95 percent to the public and 5 percent to the private? No. It was 99 percent to Pfizer and Moderna, and they refused to share it with the developing countries and emerging markets. So, there was something fundamentally wrong. People talked about how this was going to be a public vaccine because we had paid for it. And what it was, we privatized public knowledge. So, again, something's rigged about the system. The rules of the game have been set by the drug companies at the WTO negotiations way back, and the drug companies were very influential in stopping even the adaptation of those for the circumstances of the pandemic.
SR: That's right. If you recall, there was a call by India and Brazil and South Africa, joined by 100 countries at least for the duration of the pandemic, to drop the barriers on intellectual property. And, curiously, the U.S. government went with that call. It was Europe that disagreed, and brought it to a fall, to keep the barriers where they were.
JS: That's right. I was part of a very active civil society movement that interacted with Biden and persuaded the Biden administration to support that waiver. How do you balance the lives of people dying and the danger that the disease would fester, and come back and bite us? How do you weigh that with the profits of two companies? They were still going to get billions and billions of profits.
It was amazingly difficult to persuade Biden. We thought it was an easy call. But we did persuade him. So, we won. But we could not get Germany on board. We got one of the parties in Germany on board, but we couldn't get the other two parties. And you could figure out which parties. And we couldn't get the UK and Switzerland on board.
SR: In “The Price of Inequality” you have a chapter that actually echoes the World Social Forum slogan in Porto Alegre, saying "another world is possible." It’s 10 years since you wrote the book. Do you still share this optimistic belief that a more equitable world is still possible? And how are we going to bring it about?
JS: Well, the first question is easy to answer. Yes, another world is possible. And one of the things that I've enjoyed about Alpbach this year is I've heard that slogan, actually, a lot, and, you know, especially among young people. Another world is possible.
One doesn't have to have the kind of carbon footprint. We know we could get the world to net neutrality by 2050, that it's technologically possible, and if we just change the rules and change behavior, in ways that would not actually compromise our standards of living. In many ways, it would increase our healthiness. So, that's one dimension.
But in the area that we're talking about here, I believe an economy where there's less monopoly power, more equality, more equality of opportunity particularly, the economy, society, would function better, including our democracy. And we haven't come to the question about why inequality has been so bad for our democracy. I really do think it's very bad for our democracy. And I think it undermines the way our society functions.
So, in every one of these ways, higher levels of inequality undermine our economy, our democracy, our society. Could we have different rules, more progressive education, more progressive taxation? If you look at the United States, for instance, a regressive tax system, those at the top, the very top, pay a lower percentage of their income in taxes than those down below.
There's no economic theory that says that's a good thing. And so, is it possible to write a fair tax law, where those at the top pay at least as much in taxes? Do we know how to do it? Let me say, do we know technically how to do it? Yeah, we know what the problems are. We know even what provisions of the tax code, the capital gains taxation, wealth taxation, inheritance taxation. We know the loopholes. We know about the tax havens. We know Europe and America could shut down the tax havens overnight.
Why don't we? Well, we all know the answer. The people who put their money in the tax havens are very influential, and don't want them to be shut down. They make a big deal about, "Oh, it's so difficult." It's not difficult. You just say to your banks, "If you interact with those tax havens, unless those tax havens give us full information, you will lose your banking license." How many banks in Europe would do business with the tax havens if you have that simple regulation, easy to enforce? No one. And what would happen to the tax havens? They would have to change, because they wouldn't be able to interact with the banks in Europe and America.
We know what to do to create this alternative world, to have a more progressive tax system. So, then that comes to the hardest question, “why?” well, we know why. We have a system where political power is exercised more by those with a lot of economic power. And that's part of the problem in our democracy today.
But we still have a democracy. It's a flawed democracy, but we still have a democracy. So, if we can get citizens to understand why these tax havens exist, to understand and agitate, "Let's get rid of those tax havens," to understand that, in fact, one of the problems in our society, our economy, and our politics is the power of money in politics, and we change the rules about the power of money in politics.
I think it can happen. We can circumscribe. You know, I don't think we'll eliminate it, but we can reduce the power of money. And I can tell you, you know, even a lot of rich people think this is outrageous, the regressive taxation, the secrecy, because good people who are paying their fair share, resent the fact that there are these bad actors who are not paying their fair share.
SR: So, two follow-up questions on that, Joe. One, if we look at the trend in income inequality, in Europe, it has always been much lower than in the United States. And that's because of a different tax regime, also because of a welfare state. But that's exactly what got dismantled under neoliberal policies over the last 30 years.
And interestingly, it's the Social Democrats and the Labor Party in Britain, which dismantled large parts of it, including taking away inheritance tax, taking away, in many places, capital gains tax. In this country, in Sweden, inheritance tax was taken away by democratic governments. So, this is a rather curious political phenomenon, exactly the actors you would've expected who would have an interest in a more egalitarian society. Do you have an explanation?
JS: Yeah. I think you have to understand that in a broader historical context. I'll talk about this a little bit from an American point of view, but it has a reflection in the European discussion. And when I say American, I mean the United States. Part of the story was that when it became clear that there was this battle, the Cold War, between communism and democracy, free markets, when the Soviet Union collapsed, everybody said, “We won.” The right answer was, “they lost.” But the attitude was that it had shown that the market economy worked.
And part of that doctrine was something called trickle-down economics. And there was a view that there'd been too much emphasis on redistribution. If we could get the economy to grow more, then everybody would be better off.
Trickle-down economics became part of the doctrine. I remember having discussions when we were talking about trade liberalization in the Clinton Administration, I would ask, standard theory says that under globalization with developing countries, the demand for unskilled labor in the United States will go down because we'll import more goods from those countries with cheaper labor. Our workers will be competing.
Standard economic theory said that even if the country as a whole is better off, unskilled workers are going to be worse off. And unless we do something about this, and that means give them more education, it was a losing battle. There was such faith in trickle-down economics that they said, “Yes, you're right. We'll try. But if we can't get it through the Republican-controlled Congress, trickle-down economics is our safety net. And we don't have to worry.”
For four years, when I was Chairman of the Council of Economic Advisors, I resisted banking deregulation. I said, “The banks have a history of undertaking excessive risk if we don't regulate it adequately. Finance is really important for a functioning economy, but if you don't regulate it appropriately, money won't go into productive uses. You won't have growth, but you will get instability.”
They didn't listen to that. And then we wound up in 2008. We got the deregulation after I left. And then we had the financial crisis not very many years after. And that itself hurt the people at the bottom, particularly African Americans, who were just first-time homeowners. So, you saw even a racial inequality showing up in wealth, very strongly in that episode.
So, the bottom line was that that particular period was one in which there was an ideology that markets would solve all problems, and somehow everybody would benefit. And one of the points of my newer book was 40 years of this “experiment”, the results are pretty clear, country after country. Trickle-down economics did not work. We got increasing divides and even wage stagnation and decline in the middle and the bottom.
SR: So, let me quote another very interesting essay of yours. In your essay “After Neoliberalism” you go so far as to say, “Neoliberalism must finally be pronounced dead and buried.” Is it dead and buried?
JS: Unfortunately, not. That was maybe wishful thinking. I don't know how many of you followed the Chilean elections and the debate a few years ago where Boric was running in the primary on the center-left.
Milton Friedman, who always claimed that market freedom was really important because it was necessary to have political freedom. And he never really believed that. And the minute Pinochet became the dictator, he got in bed with him, and became his advisor. I think maybe even before he got into office. He created an economic disaster in Chile.
The slogan that Boric ran on was "Neoliberalism was created in Chile, and neoliberalism will be buried in Chile." The evidence is that it does not work in the way that they believed. Financial deregulation did not lead to stability. And these other aspects of neoliberalism did not lead even to growth, because what growth occurred was not shared growth.
SR: I think the interesting point there is, the larger point, the political point, is the idea of conflating freedom with market freedom, right? In your recent essay, you've made a very interesting comment, where you say, "We need to reclaim the idea of freedom from the likes of Milton Friedman and his followers.
You argue against that, saying, “Following Isaiah Berlin, we need to get away from conflating a crude idea of unfettered, unregulated capitalism and market fundamentalism, which rests on a zero-sum conception of freedom, freedom for the wolves, and death for the sheep.” Could you say something about how a new idea of political freedom could emerge in the current context, given the economic imbalances, asymmetries, the monopolies that we have? Where would it come from? Who would be the actors who could push for it?
JS: Yeah. So, going back and trying to put some of these ideas in a historical perspective, particularly in the United States, “Give me freedom or give me death,” was one of the slogans. In my forthcoming book, one of the points I point out is that you shouldn't see the American Revolution as a fight for freedom. It began as a tax rebellion. The people in America didn't want to pay taxes on tea.
This was a commercial dispute, and it was a dispute between elites. The elites in UK or the elites in America were going to govern in the United States? So, it was a fight about who was going to govern. If it had been a fight about freedom, you would've freed all the slaves. But the constitution of the United States knew it was morally wrong to have slaves. They said it will...slave trade would only go on for 20 more years. But you could keep your slaves forever. And you could keep the children of the slaves, and the grandchildren of the slaves as slaves.
So, I've argued, the Virginians, who were the main shapers of the constitution, understood that by restricting the import of slaves, you increase the market value of slaves. It was all a commercial idea, that it was a protection, it was a protectionist measure in order to increase the asset values of what was, at the time, their major asset in the South. The value of the slaves was a major asset in the southern part of the United States.
So, one has to sort of put aside the view that the American Revolution was really about freedom. But it's very strong in U.S. mythology. We have one of the groups in the Republican Party calling itself the Freedom Caucus. And they're fighting for the freedom to carry guns, the freedom not to wear masks, the freedom not to be vaccinated.
And as Isaiah Berlin put it very vividly, he said, “Freedom for the wolves is death for the sheep.” And the way I put it is, one person's freedom is another person's unfreedom. Your freedom to carry a gun means somebody else's freedom to live a normal life, let alone to live, is compromised. I don't know if you know, in American kindergartens, the children have these exercises of what happens when a gunman enters the room and how you get under the desk. Can you imagine that every day, you're prepared for somebody coming into your classroom and shooting you down? What does that do to a society?
The broader point is that in an interdependent society, you can't think of one person's freedom without what impact it has on another. And in a complex society, you need regulations. And we've always known that. The Ten Commandments are a set of regulations. Thou shalt not steal. Well, that's a regulation. It stops me from doing something. It impairs my freedom to take your goods. That's a restriction on freedom. But it's a restriction that we all understand is a good and necessary thing to make our society function.
So, understanding, in an interdependent society, how those freedoms interact, you can't take an absolute position. You have to understand how affecting one person's freedom really can enhance the freedom of another, or of everybody because of what we call the free-rider problem.
SR: That's right. I wanna come back to one point you just made, which is when you were pointing out to the fact that there will be losers of a certain kind of trade liberalization and economic liberalization. There were losers of that kind of economic globalization in every country. There were winners as well, and we did little for the losers, as you pointed out.
Why is it that the populist right-wing ethnonationalists managed to capitalize so much on the capacity to mobilize the resentment, the anger of these losers? Because when you see their record, when they are in power, most of these regimes have not done anything to even address or redress these inequalities. In fact, they've all fostered crony capitalism. Look at Orbán, look at Erdoğan. It's their families or their party members who have gotten rich, and yet they are able to garner more political support than any progressive politics. How do you explain this?
JS: Yeah. I think that's a hard question. I feel that what you just said very strongly. You have Trump getting elected on a populist platform, and then enacting a tax cut. And if you look at the structure of the tax cut, that was in 2017, it gave a tax cut to the billionaires and to our big corporations. It actually entailed, when fully implemented, a tax increase for the bottom 50 percent to 75 percent of the population.
I wrote articles trying to explain what they're trying to do. But the rhetoric, “We're cutting taxes,” and you ask, ”But for whom?” That didn't get through. I think you might say the left has a real problem in that we're too wedded to telling the truth. Those of us who believe in the enlightenment believe in truth. We may never be fully certain, but we are 99.9 percent certain of some things, that there are other things that we have more uncertainty about. And we find it very difficult to lie.
I think it's a good thing that we teach our children not to lie. And I think it's a good thing that part of the political spectrum believes that truth, in the end, will win out. But we have to also come to terms with the fact that there are groups, in the United States, one of the two parties, has no compunction about lying, in any way, saying the election was stolen or, whatever, even when court after court says, “No, there's no evidence of it.”
And I think one has to understand a little bit of the way they've reframed the world, and how they see it; democracy, unfortunately, for them, is not the highest value. Telling the truth is not the highest value. What they see is the highest value are things like preserving our way of life, avoiding the uncertainties of a different set of different kind of social order than the one. So, very conservative.
And part of that is maintaining power relationships. So, a world, in which males dominate, it's not a surprise that a disproportionate share of the supporters of Trump, and of the other people on populist side, are males.
Things that we think of are so important, democracy, truth, those are second order to the preservation of their role in a society and their understanding of what is "the way society should function." And occasionally, you'll see a U.S. politician just be open about it.
SR: So, let me come back to the first question I was asking you. In the open letter which you wrote, you address it not to a national government, but you address it to the UN and to the World Bank, asking for international institutions to play a role in reducing inequalities. Now, the question for me is, what role can they play? Do you think we can expect the emerging and the developing countries, which are all members of these institutions, to say, “We are willing to restrain ourselves and curb economic growth while Europe and the U.S. continue along a path of unbridled consumption, expanding their markets?” And then the question will also become one of balancing an energy transition and climate change versus economic growth. I think that's one of the thorny problems that all democracies are facing today when they get to elections. It's going to be very difficult to convince people to give up certain things in order for there to be less growth or for there to be a just climate transition.
JS: I think that, for the next few decades, at least, restructuring the way we do our economy, in a way that is consistent with a green, just transition, actually can lead to higher standards of living. I don't mean necessarily a higher measured GDP, the way we measure it, but higher standards of living.
But I want to emphasize, given the world's population, there are still billions of people who do not have adequate food, nutrition, healthcare, education, and they are going to need resources. There is so much technological opportunity. Just see what's happened in the pace of renewable energy. The price, the cost of renewable energy has come down 90 percent in the last 15 years. And that was with almost no government push. You can imagine what we could have done if we had had...
SR: Invested in it.
JS: ...a real government push. Think about what that does to the developing countries. They're in that zone of the world that gets more sunshine. So, they are in the area that is well-endowed with the most important new energy source, which is sunshine. And they also have a lot of wind. So, there's been a major redistribution of wealth that's occurring.
And so, they have the wealth. It's a very distributed kind of energy, so it changes the structure of societies, it changes power structures, both electric power and political power structures. So, in my mind, this is a real opportunity for change. And the growth potential, some of the developing countries are, and emerging markets are less burdened by stranded assets, by legacy assets that are dirty, if you want to think of that way.
The essential thing now is to green our economy. And there's so much potential for greening the economy that we can actually have that green transition with a positive growth effect, if we manage it right. Over the long run, if everybody had the standard of living of Western Europe, we don't need to grow anymore. But right now, we do have a real problem of how we make sure that everybody gets up to that minimal standard that we're well below that now.
SR: One last question, it would be on China, because the whole relationship between democracy and economic growth is predicated on a modernization theory tenet that economic growth and democracy go hand in hand. One is a good precondition for the other, and one also leads to the strengthening of the other.
China is a good counterexample to that. You have a one-party rule, state-led capitalism, achieving enormous economic growth. And although it's gone in for a renewable transition at a very, very fast pace in the energy sector, it's also using up massive amounts of fossil fuel. So, do you think the Chinese model could prove attractive as an economic and a political model, as an alternative to Western democracies, liberal democracies?
JS: No, in short. And I think for a number of reasons. I mean, first, I value democracy. And whether they use the word democracy, People's Republic, whatever you use, they're not a democracy. Under a previous president, they had tried to get more participation. But even that has been put aside, and the control mechanisms of a democracy are not in place.
SR: In fact, the surveillance mechanisms of an autocracy are very much in place.
JS: Exactly. And so, I would not be confident that they'll be able to maintain their growth. I am a little bit optimistic that they actually will move much more towards a green transition. But I'm not so sure that they'll be able to maintain strong growth. And the reason why they're gonna maintain green transition is a very simple one. People living in Beijing are dying from pollution. And it's become a major issue.
There was a famous meeting, where the premier, in response to a question criticizing his policy, said, "Don't you understand I have to breathe this air too?" And now, he was conveying even his own self-interest. China needed to get cleaner air, and to deal with the pollution, just so that the premier could live.
Even a certain level of selfishness will get you a long way in the green transition. But the fact, democracy is something that I think most people want. It has not achieved a degree of fairness. They created more billionaires than, I think, anywhere else in the world. The lack of voice is obviously a concern. But what worries me is that they've been very active in projecting their “alternative,” if you want to call it that, on developing countries and emerging markets.
Both Russia and China, during Covid-19, made their vaccines more accessible than Europe and the United States. They weren't as good a vaccine, but, you know, if you have no vaccine, some vaccine is better than nothing. Russia even went to some of the countries in emerging markets and said, “We'll help you develop production facilities.” And that was successful vaccine diplomacy. We had terrible vaccine diplomacy. It was negative diplomacy. And with the Russian invasion of Ukraine coming on so close to the vaccine, that memory, I think, is still there as part of the legacy of Covid-19.
In Africa, Chinese have provided an enormous amount of infrastructure, but it's been accompanied by a lot of corruption, and the quality of some of it is not so great, and it's been accompanied by a lot of debt. So, people are beginning to realize that there's no free lunch, and there are some real problems with that Chinese model. So, I think, if the West, Europe and United States, can do a better job of reforming, it's very clear, it's a much better model than that provided by China.
SR: Thank you so much, Professor Stiglitz, for this wide-ranging discussion, a very insightful discussion, of the complex relationships between democracy, economic growth, and inequalities. I hope your optimism turns out to be right, both in terms of liberal democracies as its future, but also in terms of the green transition, and that we have the necessary political forces supporting it to make it possible. Thank you very, very much for being with me today.
Let me briefly summarize what we have learned from Professor Stiglitz today. The interacting negative effects of unsustainable debt, deregulation, and market-distorting monopolies have increased economic inequality both within countries but globally also, across countries. This has been compounded by the systemic shock of the Covid pandemic and Russia’s war of aggression, which raised fuel prices and caused acute food shortages affecting the poor, especially across the global South. This increase in inequality serves as a stark reminder about the vast asymmetries of power dividing our societies across the globe and also polarizing each society from the inside. And it undermines the very spirit of democracy. Growing economic inequality also leads to political inequality, which corrodes democratic institutions.
Several misguided neoliberal policies, as well as the ideological illusions about trickle-down growth benefiting everyone in a society have fueled popular mistrust in liberal democracy itself. As so many other guests of this podcast have repeatedly also pointed out, these trends have paved the way for right-wing populists to effectively channel and exploit popular discontent, even though these populists fail to redress inequalities or promote more equitable, more just societies. Greater inequality and polarization can easily sway large segments of the population to lose faith in democracy, if it fails to deliver growth and prosperity. Popular imagination, as Prof. Stiglitz pointed out, may easily be captured by illiberal, authoritarian forces that do not shy away from peddling untruths to gain or to retain power. The anti-egalitarian neoliberal policies that many of these soft authoritarian rulers often follow have only made matters worse. Yet Prof. Stiglitz remains a staunch optimist. He firmly believes that with needed reforms in taxation and redistribution, and measures in place for a globally just green transition, our democracies can flourish, they be saved from authoritarian, populist threats. This will, of course, require a radical rethinking of our economies. But reimagining our present and future means facing some inconvenient truths about the current state of capitalism as well. This may not be an easy task. But it is the first necessary step towards reclaiming freedom to build another, better world.
This was the fifth episode of season seven. Thank you very much for listening. Join me again in two weeks’ time when I will continue my discussion with Janka Oertel on the Chinese government’s self-understanding as a democracy and its new foreign policy. We will explore the implications of the extension of BRICS to challenge Western hegemony, the reach of the Belt and Road project and its replacement by the Global Development Initiative.
Please go back and listen to any episode you might have missed. And of course, let your friends know about this podcast, if you’ve enjoyed it. You can stay in touch with the work of the CEU at www.ceu.edu and the Albert Hirschman Centre on Democracy at www.graduateinstitute.ch/democracy.
[i] Stiglitz, J. E. (2017). Globalization and its discontents. Penguin Books.
[ii] Stiglitz, J. E. (2017). Making globalization work. Langara College.
[iii] Stiglitz, J. E. (2010). Freefall: America, free markets, and the sinking of the World Economy. W.W. Norton.
[iv] Stiglitz, J. E. (2012). The price of inequality. Lane.
[v] Stiglitz, J. E. (2016). The Great Divide. Penguin Books.
[vi] Stiglitz, J. E. (2020). People, power, and profits: Progressive Capitalism for an age of discontent. W.W. Norton & Company.